This is a question that gets asked a lot. Usually in the context of a broken relationship.
“My ex-boyfriend wanted a car and I agreed to co-sign the car loan. He and I no longer see each other and he refuses to take my name off the car loan. What can I do?”
Let’s attack this question in four easy steps.
First, the boyfriend has no power, by himself, to get his former girlfriend’s name off the car loan.
Second, only the car lender can agree to release a loan party who is obligated to repay the car lender.
Third, the car lender has no incentive to release anyone because doing so makes recovery of the car loan less certain. The car lender knows that it’s easier to get repaid if the lender can go after two people as opposed to just one.
Fourth, the car lender may be enticed to release a co-signer under two circumstances. In the first scenario, if the party who will remain obligated on the car loan pledges additional security that is satisfactory in form and amount to the car lender, the lender may agree to release a co-signer.
The additional security can be foreclosed on by the lender if the remaining borrower defaults on the car loan.
In the second instance, if the co-signing party that wants to be released can find another party of equal or better financial standing to substitute in the place and stead of the departing co-signer, the lender again may be willing to release the original co-signer.
This way the lender still has two parties from which to recover on the defaulted loan.
The Key Takeaway?
A bankruptcy judge once commented, in chambers, that “a guarantor (one who co-signs for another) is a schmuck with a pen in his hand.” “Schmuck” is Yiddish for a foolish person.
Be careful if someone who is not a natural object of your affection (i.e., your children) plead with you to co-sign a loan of any kind for them. Only do so if you are fully prepared to pay off the loan in full — by yourself.
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